Fiat Must Pay $342 Million for Chrysler Stake, Trust Says

Nov. 12 (Bloomberg) -- Fiat SpA, the automaker planning to
merge with Chrysler Group LLC, must pay at least $342 million to
boost its ownership stake to almost 62 percent, the U.S.
automaker’s minority shareholder said in a court filing.

The amount sought by the United Auto Workers’ retiree
health-care fund is 145 percent more than the $139.7 million
that Turin, Italy-based Fiat said the additional Chrysler
holding should be worth in an earlier court filing. Fiat sued
Sept. 26 in Delaware Chancery Court to confirm the price owed to
the health-care trust.

Chief Executive Officer Sergio Marchionne has said Fiat’s
ability to complete a full merger with Auburn Hills, Michigan-based Chrysler is limited by a costly turnaround plan for Fiat
announced last month. The 60-year-old executive, who leads both
automakers, has said Fiat still plans to use call options that
were part of Chrysler’s 2009 bankruptcy and now are in dispute.

“We’re quite willing and capable and able and we’re
standing by our call options to exercise them as they become
due,” Marchionne said on Chrysler’s quarterly conference call
Oct. 30. He said he’s still targeting the “unification” of
Fiat and Chrysler by 2015.

Call Options

Fiat has said that it will increase its controlling stake
in Chrysler to 62 percent after completing the first call option
purchase from the trust. The Delaware Chancery Court may rule on
the matter by the end of the year, Marchionne said in the
conference call.

As part of Chrysler’s 2009 bankruptcy, Fiat was granted the
call options to purchase a portion of the trust’s stake every
six months through June 2016. The agreement covered 40 percent
of the trust’s holdings.

Fiat isn’t able to access Chrysler’s cash until a full
merger of the two companies is completed. Fiat reported 20
billion euros of available liquidity at the end of the third
quarter, down from 22.7 billion euros ($25.4 billion) as of June
30.

Turnaround Plan

Fiat last month presented a plan to turn around its
European operations that are generating wider losses and led the
automaker to cut its 2014 profit goal by 31 percent to 5.2
billion euros. Other European automakers such as PSA Peugeot
Citroen also are struggling as industrywide sales head for their
biggest annual decline in 19 years.

The trust’s lawyers filed a response to Fiat’s suit
claiming the voluntary employees benefit association (VEBA)
violated an agreement to sell the shares.

The VEBA’s attorneys also filed counterclaims to Fiat’s
suit, arguing that the automaker sought to pay only “a fraction
of” the shares’ fair-market value, the lawyers said in the
filing.

Sales of the shares at Fiat’s price “is not in the
interests of retirees and their dependents who rely on the VEBA
to fund health-care benefits,” the lawyers said.

At issue in the case is the agreement’s methods for
assessing the shares’ value given Chrysler’s rebound, Richard
Hilgert, an analyst for Morningstar Equity Research in Chicago,
said in a telephone interview yesterday.

“What the UAW is trying to do is get the court to look at
what the performance of Chrysler has been since Marchionne and
his management team took it over,” Hilgert said. “The cash
flows that are being generated out of Chrysler now are such that
the UAW feels a more appropriate valuation for the company would
be the higher amount that they’re proposing.”